Question: Independence. Generally accepted auditing standards require auditors to be independent. Included within this standard are the concepts of independence in fact and independence in appearance.
Required: a. Define independence in fact and independence in appearance.
b. What two general types of relationships would normally compromise auditors' independence?
c. For each of the following separate situations, discuss whether you believe the auditors' independence has been compromised.
1. The auditors' firm provides extensive consulting services to the client; these services provide revenues to the firm that exceed revenues received from the audit engagement.
2. The spouse of the partner in charge of the audit engagement occupies an executive level position within the client.
3. A distant relative of a partner within the firm occupies an entry-level position within a client of the firm (the audit is conducted by another office of the firm with which the partner has infrequent contact).
4. A staff member within the firm owns shares of stock of one of that firm's clients (she is not a member of the engagement team serving that client).